We spend all our money on people - so let's engage them

When I meet with chief executives or finance directors to discuss spin-outs in the NHS or local authorities, their first question tends to be: "Why do this?". Indeed, why not just privatise – or leave things as they are? If the "fat" has already been squeezed (a claim we hear constantly), where's the gain in spinning something out?

My answer in one word, is this: engagement. The people factor. According to a recent study by Prof Raj Sisodia (and corroborated by a Global Workforce survey of 90,000 workers in 18 countries by Towers Perrin), companies that score highly on employee engagement also perform better financially. Higher margins and more rapid growth are both proven dividends of an engaged workforce.

But aren't public sector workforces already highly motivated? Well, often they are not. Many love their jobs and are deeply committed to their clients. Yet, in the management culture prevalent in many large public sector organisations – top-down, remote and controlling – they give far less of themselves than, ideally, they should.

Even the language captures this. In the NHS, the terms "staff side" and "management side" are used to describe different elements in the organisation – like two armies lined up for battle. This isn't so bad in councils, but the "done unto" mentality tends to pervade. Relatively few people appear to feel permitted to make things happen; at least not without cover from above. The net effect of this is that you have organisations which, on quite a deep level, underperform. People simply zone-out, keep their heads down and survive.

According to the management writer Gary Hamel, disengagement is allowed to happen for one of three reasons. The first is ignorance. Management just doesn't get the fact that people often withhold the best of themselves at work – and do only what is required. Their innate enthusiasm, initiative, creativity and passion is seriously stifled, with a deleterious effect on the good the organisation is able to deliver.

I find this to be extremely common in the public sector. Only last week, I was was debating with an NHS organisation that wanted, very late in the day, to cancel a good-to-go staff-led spin-out because it was, in the funny-money world of the NHS, now "unaffordable". This was despite the catastrophic effect it would have on the engagement of the staff who, for 18 months, had been taking this forward as a practitioner-based venture. I saw not a flicker of awareness of this in the calculus of management's proposal to not go ahead.

The second reason we see mass-disengagement is indifference on the part of the leadership. Managers know, in their hearts, that people are flatlining but just don't care enough to do anything, perhaps because a callous corporate culture has robbed them of empathy. Again, I see this a lot, not least in the example just referred to.

The third factor at play is impotence. Managers often care a lot – but don't feel they can do much about what they see around them. Understandably, they see a system they can't change. They do what they can, but, perhaps sensibly, they don't burn themselves trying to buck the system and its norms. One otherwise extremely helpful and supportive manager in the example above fitted clearly into this category, in my view.

What organisations fail to grasp, says Hamel, is that we need forms of human organisation which maximise this potential for engagement. Only this, he argues, will bring productivity, innovation and quality to the levels we all want.

So are spin-outs the answer in the public sector? My belief is that they point in the right direction. They are normally smaller than the vast public sector empires from whence they came. They have freedom of movement and a clearer rationale and identity. Constitutionally, they are often staff-owned, even if this ownership stake translates only into a say in how the company is run, rather than cashable shares. Most importantly, they capture people's imagination. They re-animate the people setting them up. I have seen it time and again. People tend to buy in – and stay bought in.

Of course, they are not a magic bullet. I have seen several spin-outs that look, feel and operate like the organisations from whence they came. Nothing – not even the logos or company colours – change. People often don't even appreciate that they have moved from the public sector into a social business. Things don't move on. But, more frequently, I have seen big changes that manifest themselves in large steps forward in the way a company operates, its efficiency, effectiveness and competitiveness – and, interestingly, its level of measured staff happiness and absence.

You would think that armed with some good data, this would impress anyone I meet in the public sector. That this alone would be grounds for, just maybe, giving serious thought to spin-outs as a way forward. On occasion, it does. Really good people get it.

But, quite often, I see people glazing over. They either just don't believe it or can't quite see what greater engagement, delivered through a spin-out, could mean in terms of the vaunted goal of delivering more for less. Too many people think that better productivity is primarily about simply sacking people – and ordering the remaining people to work harder. The gains of a more engaged, productive workforce are not viewed as sufficiently cashable to be of any meaning.

Yet this is, perhaps, the biggest possible win of any of the spin-outs that I have seen.